The Einhorn effect: Chipotle tumbles after Taco Bell comparison

David Einhorn, president of Greenlight Capital, speaks at the Value Investing… (Peter Foley / Bloomberg )

All it took for Chipotle Mexican Grill Inc.’s stock to tumble 7% in less than five minutes was a recommendation to short from hedge fund manager David Einhorn.

The plunge was deep and immediate. The Greenlight Capital founder’s concerns about the fast-casual chain’s surging growth, price increases, problems with possible illegal immigrants and ability to shake off renewed competition from Taco Bell set off a mad sell-off Tuesday.

Speaking at the Value Investing Congress in New York, Einhorn said Chipotle has ridden high in recent years, according to news reports.

The company has been on a tear since late 2008, going from less than $40 a share to well over $400.

But high-flying restaurant stocks usually don’t stay elevated forever, Einhorn noted. In July, Chipotle's second quarter sales failed to meet expectations, causing the company to lose nearly a quarter of its market value in less than a day. The stock has since struggled to recover.

The chain is among several industry darlings, including Panera Bread and Five Guys, that have ushered in a heyday for fast-casual eateries focused on sustainability, fresh ingredients and street cred.

But as Chipotle grows, expanding into Asian food with its Shophouse venture, the chain has also run into problems.

Einhorn pointed out the company’s entanglements with the government over hiring practices, which regulators have linked in the past to undocumented workers.

And the chain faces a new threat in Taco Bell, which has burst out of a slump with popular, affordable offerings such as the Doritos Locos tacos and the more upscale Cantina Bell menu, according to Einhorn.

Einhorn, 43, is an influential figure on Wall Street. The married father of three recently made the Forbes 400 list of wealthiest Americans, coming in at 360 with a net worth of $1.2 billion.